Non-domiciled tax

These reforms represent a significant shift in the UK’s approach to taxing non-domiciled individuals. Proactive planning and professional advice are essential to navigate this evolving landscape effectively.

Understanding your residency and domicile status

The UK government has announced significant reforms to the taxation of non-UK domiciled individuals, commonly known as ‘non-doms’. These changes, effective from 6 April 2025, aim to modernise and simplify the tax system, making it fairer and more competitive.

Key changes:

• Abolition of the non-dom regime: The existing non-dom tax regime will be replaced with a residence-based system. This means that tax liability will be determined by an individual’s tax residence status rather than their domicile.
• Four-year foreign income and gains exemption: New arrivals to the UK, who have not been tax residents in the previous 10 years, will benefit from a four-year exemption on foreign income and gains. During this period, they will not be subject to UK tax on these overseas earnings.
• Inheritance tax (IHT) changes: The concept of domicile will no longer be relevant for IHT purposes. Instead, a residence-based system will be implemented, potentially altering the scope of IHT liabilities for individuals with international ties.

Implications:

• Existing non-doms: Individuals currently benefiting from the non-dom regime will need to reassess their tax positions in light of these changes. The shift to a residence-based system may result in increased tax liabilities on worldwide income and gains.
• New arrivals: The four-year exemption provides a transitional period for new UK residents to adjust their financial affairs. However, they will be subject to UK tax on global income and gains after this period.
• Estate planning: Moving to a residence-based IHT system necessitates reviewing estate planning strategies, especially for those with assets in multiple jurisdictions.

Action points:

• Review tax status: Individuals affected by these changes should consult with tax advisers to understand the full impact on their financial situation.
• Plan ahead: With the abolition of the non-dom regime set for April 2025, there is a window to implement tax-efficient strategies before the new rules take effect.
• Stay informed: As the government releases further details and guidance, staying updated will be crucial to ensure compliance and optimise tax planning.